DNA Money Edit: Centre comes to rescue of banks

Banks are likely to recoup their losses from their treasury investments as government lowers its borrowing limit. But for the third quarter ended December 2017 the losses from the treasury book would be high enough to dent the profits of banks.

According to RBI data, about 82 % of the total investment pool of banks was parked in government securities as of 2016-17. For public sector banks, this proportion was even higher at 84%. Now that the finance ministry lowered its additional borrowing plan to Rs 20,000 crore for the fiscal from the earlier proposal of raising an extra Rs 50,000 crore from the market the yields are likely to cool.

The government in the 2017-18 Budget had estimated market borrowings at Rs 43,000 crore through dated securities for the current fiscal. A decline in revenue collections from the goods and services tax, and lower non-tax revenue have led to worry about the government meeting the fiscal deficit target.

The government has budgeted gross and net market borrowings at Rs 5.8 lakh crore and Rs 4.23 lakh crore, respectively, in 2017-18. As per the latest figure, in November 2017 the fiscal deficit target had breached the budget target and touched 112% of the Budget estimate for 2017-18 mainly due to lower GST collections and higher expenditure.